With equipment orders not rolling in like they used to, or at least having slowed down slightly, equipment vendors are looking for new ways to bring in revenues. At the same time, carriers are looking to tap into new revenue streams without making huge investments in new infrastructure. And cutting operational costs, well that’s always on the table with carriers. All of which has led to an increase in both managed services and hosted applications among vendors and carriers.
Though vendor-managed networks have yet to catch on with large U.S. carriers, the practice is gaining traction in Europe and other areas where smaller carriers are the norm. Vendors claim they can save operators upwards of 15 percent in operating costs by managing their networks, and the savings can really add up when carriers want to trial new applications.
“Operators in an increasingly competitive industry are struggling to manage their network costs and quickly launch new, revenue-generating services and technology solutions,” explains Elizabeth Bramson-Boudreau, a director at Pyramid Research. “Through outsourcing, carriers are able to focus on increasing the bottom line.”
L.M. Ericsson leads the pack with managed network deals, most of which are in Europe. In December 2005, Ericsson announced a seven-year managed services agreement with 3 U.K. to manage the operator’s third-generation network and IT infrastructure. The contract includes the transfer of 1,000 employees from 3 to Ericsson U.K. The Swedish telecom giant didn’t disclose the actual value of the contract, but it did divulge that the deal was the largest in its history. Pyramid Research estimates the contract value in excess of $2.5 billion.
Pyramid Research began analyzing the managed services and outsourcing market four years ago and says their analysts have predicted that Ericsson-style deals would become the norm.
Indeed, Nokia Corp. and Lucent Technologies Inc. both made managed services announcement last week.
Nokia’s bullish press release was headlined “Full Steam Ahead for Nokia’s Services Business Unit.” The company made it clear that it considers its yearling Services Business Unit a success.
“We are proud of our achievements in our first year as a business unit. Thanks to significant double-digit revenue growth in 2005, Services now comprises over 30 percent of revenues in the Networks business group, and over one-third of Networks’ personnel,” said Bosco Novak, senior vice president of Services at Nokia’s Networks division.
Bosco continued, saying, “This solid foundation gives us a good start for 2006, and we are expecting growth especially in the areas of managed Services, Consulting and Integration and Service Management.”
Nokia said its managed services contract wins included a deal with Hutchison Essar that involves Nokia taking on more than 600 personnel, a consulting and integration project with China Mobile in Guangdong for a large mobile browsing delivery platform, a contract with Telecom Italia Mobile for Nokia’s Integrated Provisioning solution for Internet Protocol Multimedia Subsystem subscriber authentication and device management and a push-to-talk hosting contract with Mobilkom Austria.
“This expanding Services footprint shows we are gaining ground and helping to unlock business value for operators by optimizing capital employed, reducing operating expenses, retaining subscribers, generating new growth and managing risks,” Novak concluded.
Lucent announced that its network analysis and optimization service was extended with T-Mobile International in Germany, Austria, the Netherlands and the U.K. The project began in October 2004 and the contract expansion is expected to continue the services into 2006, Lucent said. The company also pointed out that its services would be used as T-Mobile launches its next-generation networks.
Managed service arrangements are also not just about vendors working with their own equipment. That scenario would be difficult to manage with most carriers operating networks comprised of equipment from different vendors.
“T-Mobile’s selection of Lucent for analyzing and optimizing its UMTS networks is further proof that Lucent has the experience and the expertise to support multi-vendor networks,” said Uwe Klingebiel, vice president of Lucent Worldwide Services in Europe, the Middle East and Asia. “Our independent evaluation of network and services with respect to voice and data quality in T-Mobile’s UMTS networks is laying the foundation for further improvements.”
Lucent says more than 15 European network operators are relying on its optimization services for their GSM, GPRS and UMTS networks. In addition, Lucent stated that it has analyzed the network quality for more than 190 million mobile subscribers in Europe, which is more than half of the European subscriber base, according to Pyramid Research.
Another research firm, Analysis, points out that while outsourcing is not for everyone, its benefits shouldn’t be taken for granted.
“This is not an appropriate strategy for every operator in the telecoms market, but pioneers have proven that the outsourcing model can be made to work,” wrote Simon Sherrington, an analyst with Analysis. “Operators should really consider the competitive benefits of outsourcing activities traditionally considered as core.”
Data from Analysis suggests that the Western European market for outsourcing technology and customer services by telecoms operators is expected to show 6 percent annual growth between 2005 and 2010, rising from $7 billion to $9.5 billion.
“Outsourcing has become an important weapon in a telecoms operator’s strategic arsenal,” says Sherrington. “An effective and well-managed outsourcing scheme can deliver flexibility, reduce time to market for new services, and help to deliver profit growth for shareholders.”
